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Nonprofit pricing of services under cost uncertainty

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  • Amresh Hanchate

Abstract

For a nonprofit organization that provides individualized services to different customers a natural rule is at-cost pricing — to cover for labor, administrative and other expenses incurred in providing the service to each customer. This not only accomplishes zero profits (losses) but also zero cross-subsidization across customers. But if costs cannot be predicted before the completion of a service, and estimates are used in obtaining such service contracts, then what should be the pricing strategy? We study such a situation facing the Intermuseum Laboratory (Oberlin, OH), a nonprofit organization that restores works of art. Two alternative pricing strategies are proposed, with dual objectives of zero cost overuns and minimum cross-subsidization across customers, and present results from a simulation of this strategy using data from the Laboratory. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Amresh Hanchate, 1996. "Nonprofit pricing of services under cost uncertainty," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 20(2), pages 133-144, June.
    • Handle: RePEc:kap:jculte:v:20:y:1996:i:2:p:133-144
    DOI: 10.1007/s10824-005-3144-1
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    References listed on IDEAS

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    1. Chavas, Jean-Paul & Pope, Rulon D & Leathers, Howard, 1988. "Competitive Industry Equilibrium under Uncertainty and Free Entry," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 331-344, April.
    2. Flacco, Paul R & Kroetch, Brent G, 1986. "Adjustment to Production Uncertainty and the Theory of the Firm," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 485-495, July.
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    Cited by:

    1. Steinberg, Richard & Weisbrod, Burton A., 2005. "Nonprofits with distributional objectives: price discrimination and corner solutions," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2205-2230, December.

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